For low-income workers, every dollar counts, which is one reason it's critical not to overlook the earned income tax credit this year when preparing tax returns.
Created in 1975, the federal credit has become one of the largest anti-poverty programs by reducing tax bills and, in some cases, giving refunds worth thousands of dollars. More than 21 million filers collected $37.7 billion under the credit last year, according to the latest figures from the Internal Revenue Service.
Nevertheless, millions of workers eligible for the credit routinely don't claim it.
As many as 7 million households nationwide left more than $12 billion unclaimed, the Association of Community Organizations for Reform Now, or ACORN, estimated in a report last fall.
As the tax season kicks off, nonprofits and government agencies are renewing efforts to get the word out about the credit and to provide free tax preparation for low-income filers.
Additionally, the IRS announced last month a partnership with the Department of Housing and Urban Development to reach out to the 3 million low-income residents served by the thousands of housing authorities across the country.
This year, the income and credit limits have been bumped up to keep pace with inflation. Also new, Congress has made it easier for members of the military to maximize their tax credit this year. And the IRS has launched an online program that allows workers to find out quickly if they qualify for the credit.
The credit is on a sliding scale, and the size depends on income and the number of qualifying children. The maximum credit limits are $390 for filers with no children, $2,604 for those with one child and $4,300 for households with two or more kids.
A credit essentially reduces your tax bill dollar for dollar. So, if the credit is worth $1,000 and your tax bill is $1,000, you owe nothing. But the earned income tax credit goes one better. If the amount of the credit is higher than your tax bill, you get the difference as a refund.
So, do you qualify?
One easy way to find out is through an online program, called EITC Assistant, at www.irs.gov. It takes you through a series of questions on wages, children, investment income and filing status before determining whether you are eligible and the size of credit you might receive.
Basically, an individual must have adjusted gross income that's less than $11,490 if there are no children, $30,388 with one child and $34,458 with two or more children. Income limits for married joint filers are $1,000 higher.
Beginning this year, members of the military can include all or none of their combat pay when figuring their income for the credit, depending on which option provides the biggest credit.
Some states also offer their own earned income credit.
Tax experts say one reason that so many eligible low-income filers fail to claim the credit is because they don't know about it.
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